Who says markets can’t go up during a recession anyway?

I met a bunch of subscribers to my independent service, TradingWithCody.com, for our weekly chat and we had a blast, as usual. I’ve broken the chat down into two disparate (but not desperate!) sections:

1. Economy/markets/trading/strategy questions

2. Questions about individual stocks

Click here to read the stock Q&A. Read on for the Q&A about the economy, markets, trading and strategy. And be sure to check out TradingWithCody.com where I post all my trades in real-time.

Economy/markets/trading/strategy

Q: Do you think that market will go up into next year? Or that we might have a recession soon? A: I think the market will likely be up from DJIA 11300 it’s at today this time next year. I don’t think we are going into a “typical recession” because the corporations will remain incredibly profitable. And I should note, though, that there are many examples of year-long stretches and even multi-year-long stretches of the markets going up even during recessionary times. Bull markets and recessions are not mutually exclusive.

Q: Do you ever sell put options in any of these stocks that you expect to go up, or do just think buying common and call options is the way to go?By the way, I have doubled three positions on calls based on your recommendations. I was an original subscriber and it has been worth every penny – not just for your recommendations but for the educational value of your posts. A: I rarely short options. What’s the point? You can lose infinite if the trade goes against you and you can only make up to 100% if the trade works out. That said, there are times when I do think it makes sense because the set up is steady-betty action but you don’t think there could be much upside from the levels you’re looking at.

Q: When looking to buy calls/common do you ever consider how much they have changed that day before pulling the trigger? For example RVBD is up 5% today. Would you wait for a pullback or jump in? I think you said last week you liked the stock anytime it’s under $25, which it is although up 5+% today. A: Great question. I do like Riverbed a lot below $25 and whether or not I’d pull a trigger on the trade today has more to do with my own portfolio’s positioning and whether or not I’ve been buying Riverbed near these levels already and whether or not I like the action in the broader set up and whether or not…well, my point is that there are a ton of other factors that would weigh more on my decision than today’s particular 5% move in the stock.

Q: Cody, whats your take on the severe declines worldwide in stock markets and the possible effects it can / will have on your stocks future earnings? The gyrations and 20% like declines worldwide which they longer they continue 6-8 weeks now the longer lasting effect it can have on businesses growing? A: I’ll challenge you to explain to us how a stock market in Europe dropping 20% over a few weeks’ time truly impacts earnings power of publicly traded companies here in the US?

Q (cont’d): Business confidence starts to weaken the longer these gyrations last – losing 20% freaks anybody out, business people included, and thus the longer its duration at the lows people start to pull back on orders and outlooks. If they see spending curtail as a result of the fear and lack of any leadership anywhere in the US or EU then everybody pulls back spending on the individual level and then business begin to feel it too. Domestic ETFs like XLF, DIA, SPY, QQQ and others are down big too. A: I’d simply argue that the stock market action of 20% declines is more indicative of a potential problem than the cause of the problem. It also might be a false indicator, which is what I do think it is, and therefore is likely a good opportunity to buy your favorite names cheaper than you would otherwise be able to.

Q: I don’t have any questions, but would like to thank you for the Ciena options trade before earnings and selling them quickly when it’s up nicely the next day, which I originally did not intended to sell them the next day. A: Rock on! Thanks for letting us know how the trade worked out for you. And yeah, I have been thankful that I sold almost all of those calls after that big pop for a big gain. Let’s try to nail the next one too. Won’t be easy and we might blow it though.

Story Conversation

About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.